Bearish Outlook for Crude Oil Prices

| June 16, 2012

The price of crude oil is expected to remain bearish as The Organization of Petroleum Exporting Countries (OPEC) will not change its production ceiling, 30mn barrels a day, because of worries over shrinking global growth.

Crude Oil Prices

OPEC, the Organization of Petroleum Exporting Countries, had just completed its first meeting of the year, deciding to keep production levels unchanged at 30 million barrels a day, despite demands by some member countries to pinch down supplies in order to slow ongoing, unconstrained price declines. The group cited worry about the extreme diminishment of global economic growth, naming Europe’s debt crisis specifically, as the main reason for the decision, that concern easily outweighing the opposition’s requests for price cuts.

Look for the price of crude oil to remain bearish, as supplies remain excessive and demand continues to decline. Records show that OPEC produced 31.86 million barrels a day in May, while demand for the group’s crude will rise to only 30.9 million barrels a day for the remainder of the year, up just a bit from the 29.8 million produced in the first six months of the year. With crude oil demands in Europe, and China, continuing to slide, that excess will continue to build.

OPEC Crude Oil Production & Background
OPEC’s production has been exceeding its quota so far this year, mainly because of Iran, whose excess production pushed Brent oil to the highest March level since July 2008. That fact, combined with the European economic situation, has pushed prices to underneath $100 a barrel, below several of the cartel’s member countries’ stated base price level. At the meeting, the “elephant in the room” was sanctions against Iran for its blatant disregard for the quota. At 8:02 pm today, Brent futures for August delivery traded at $97.12 a barrel on the ICE Futures Europe exchange in London, down approximately 24% from this year’s high of $128.40.

The OPEC organization include representatives of twelve oil-producing countries including Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. In the past, Gabon and Indonesia were also members of the organization. Gabon and Indonesia left OPEC in 1994 and 2004 correspondingly. At the last OPEC meeting, they also discussed a vote to choose a successor for Secretary-General Abdalla El-Badri, but the group decided to postpone that decision until their next meeting. The next OPEC meeting is scheduled for the end of the year, December 12.

Even though OPEC’s ability to control the price of oil has lessened  since the discovery of large oil reserves in America and the opening up of Russia, the organization still hold most of the world crude oil reserve and production capacity, what makes it possible for them to control the global crude market.

Category: Press

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